Frenzy in the markets as oil heads for $100 a barrel

The price of oil set yet another record yesterday as low stocks of fuel and further falls in the dollar spurred a frenzied round in the buying of crude.

US light crude futures rose by more than $3 a barrel to break through $97 a barrel to a peak of $97.07, nearly a dollar above the previous high last week. London Brent rose $3 a barrel to a record $93.49. Oil prices have risen by nearly 40% since trading at $70 a barrel as recently as August. "We seem to be seeing a tug of war between people taking profits and those coming in to buy into dips, and they are effectively saying we can go past $100," said Mike Wittner, oil analyst at Société Générale.

If oil moves above $100 a barrel, as many analysts say is likely, it will only have to break through $101.70 to set a new record in real, or inflation-adjusted terms. It last hit that level in today's prices in 1980 in the wake of the Iranian revolution, which cut Middle Eastern oil deliveries sharply.

"Crude oil has shown remarkable resilience, as price corrections continue to be shallow and short-lived," said John Kilduff, of MF Global, adding that he expected crude to rise towards $100 per barrel, "unless recession fears truly begin to take hold, or unless there is a bearish surprise in this week's inventory report".

Dealers said oil markets were also pushed higher by fears that weekly figures due out on Wednesday would show a sharp drop in US oil reserves.

Moreover, the US Energy Information Administration raised its forecast for fourth-quarter world oil demand by 40,000 barrels per day from its previous forecast to 87.45m barrels a day. It also revised lower its projections for US crude stocks at the end of the fourth quarter and the first quarter of 2008, adding to a sense in the market that supplies are tight in a country which consumes a quarter of the world's oil.

The oil producers' cartel, Opec, regularly insists, though, that there is enough oil and the price is being driven higher by panic and speculation.

In a frantic day in the commodities markets, gold prices also set another 28-year high of $821.30 an ounce, within sight of its all-time peak of $850 reached in 1980. Silver, too, hit a 27-year peak of $15.40 an ounce and platinum set a record high of $1,466 an ounce.

Dealers said the key to the rise in all these commodities was the fall to a record low of the dollar in which they are all priced. It set an all-time low yesterday against the euro of $1.4571 and pushed above $2.09 against the pound. Against a trade-weighted basket of currencies, the dollar index tumbled to a low of 75.986.

Foreign exchange dealers have been spooked by the flow of bad news from big American banks, most recently Citigroup, which said its losses relating to the sub-prime mortgage crisis could be $11bn or even more.

"Throughout the banking system, there is a real belief that a lot of US banks haven't come clean yet on what their exposures are to this sub-prime fallout and as a result, the view is that the Fed will have to cut rates again at the December meeting," said Greg Salvaggio, a currency trader at Tempus Consulting.

Analysts said the fall in the dollar would help to cushion British motorists to some extent from the rising cost of oil but the national average prices for petrol and diesel -at around £1 a litre - are already at record highs.